INDIAN ECONOMY GROWTH

Dear Friends: India never had it so good in the THE WALL STREET JOURNAL - three articles devoted to economic issues on October 2, 2003: 1. Wall Street companies Dial Up India for Research Assistance Page C5 2. India, the Export Launching Pad A11 3. Indian Stocks Poised for Growth C14 See below. Ram Narayanan US India Friendship 

THE WALL STREET JOURNAL ONLINE, OCTOBER 2, 2003 WALL STREET COMPANIES DIAL UP INDIA FOR RESEARCH ASSISTANCE By JOANNA SLATER Staff Reporter of THE WALL STREET JOURNAL CHENNAI

India -- Prassana Madan's phone rings here in Chennai, formerly Madras, in southern India and from half a world away she hears a familiar voice. An American investment banker wants an analysis of the performance of energy companies when tracked against macroeconomic parameters -- by the next day. The 23-year-old Ms. Madan and her colleagues scramble. "There's lots of pressure and lots of deadlines, but we want to make our bankers happy," she says. Ms. Madan is part of a growing trend. Hammered by an economic downturn and regulatory woes, Wall Street firms are turning to India for low-cost help to crunch numbers and research industries. Companies such as Morgan Stanley, J.P. Morgan Chase & Co., Zacks Investment Research Inc. and Moody's Corp.'s Moody's Investors Service are contracting out research or setting up their own support centers staffed by Indian chartered accountants and M.B.A.s. Others have jumped in but are wary of revealing it for fear of alienating clients, alerting rivals or upsetting their own staff. The researchers-for-hire say that a great deal of the work that goes into a report can just as easily be done in India. "We're not arrogant enough to think we can do the job of someone who knows the industry inside out," says Joseph Sigelman, a former banker at Goldman Sachs and co-CEO of outsourcer OfficeTiger, Ms. Madan's employer. "But we can support them in a very meaningful way." Sending financial research abroad, however, also brings with complications. Investment banks have concerns about confidentiality and regulatory compliance. There is also often a drop in productivity, at least in the short term. Still, moving work to India is attractive at a time when companies are grappling with how to fund their research operations following a settlement with New York Attorney General Eliot Spitzer. Under the deal, research arms will provide independent investment advice and refrain from helping to generate other business. But it also means fees from those other deals will no longer subsidize research, making it difficult to hire staff. Enter India. Indian talent "will play a major role in preparing the background research for senior U.S. securities analysts," predicts Anil Joshi, senior managing director of Zacks Investment Research in Chicago. In order to remain competitive, he says, financial firms will "need an offshore model as an integral part of their research." The field is growing. Zacks says it will expand its approximately 40-person staff in India while Morgan Stanley and J.P. Morgan are planning centers in Bombay that will each employ roughly 50 people to start. Indian information technology are getting in on the act: Tata Consultancy Services is exploring ways to offer research services at its back-office joint venture, says CEO S. Ramadorai. OfficeTiger's Mr. Sigelman says he and co-CEO Randolph Altschuler realized the potential of the concept about four years ago during a late-night phone call as they commiserated about the difficulties of completing a presentation in the middle of the night. Their company began by assembling documents and PowerPoint presentations for harried investment bankers and lawyers. It expanded into performing the research and analysis that underpin presentations and reports. Today, about one-third of the work involves deadlines of less than an hour. Getting the processes into place is no easy task. In the first three to six months of sending work abroad, says Mr. Sigelman, productivity can drop before climbing. Customer concerns about confidentiality also require extra measures. Write to Joanna Slater at joanna.slater@wsj.com 

THE WALL STREET JOURNAL ONLINE, OCTOBER, 2, 2003 INDIA, THE EXPORT LAUNCHING PAD 

Land of IT and Software Draws Plenty of Interest From Manufacturers, Too By JAY SOLOMON Staff Reporter of THE WALL STREET JOURNAL NEW DELHI -- Fresh from its success in the global software and information-technology markets, India is angling to become a manufacturing-outsource center for everything from cars and car components to steel and petrochemicals. India's big advantage, business executives here say, is an army of skilled engineers and designers capable of creating low-cost, high-end products not often found in manufacturing centers in China or Southeast Asia. "Multinationals first come here to establish their presence in our domestic market," says Amit Mitra, secretary-general of the Federation of Indian Chambers of Commerce and Industry. "And then they realize it's a cost-effective base for outsourcing manufactured products." A rising number of Western and Asian multinational companies are setting up or expanding Indian production operations, both to cash in on the booming local economy, led by an estimated 250 million middle-class consumers, and to capitalize on an export platform with important potential. In 1998, for example, South Korean auto maker Hyundai Motor Co. placed a hefty bet on India by building a $614 million auto-assembly plant in the southern city of Chennai. At the time, many industry analysts didn't believe India's market was large enough to support such an investment, Hyundai officials say. Other skeptics warned of a creaky national infrastructure and parochial consumers who seemed indifferent to foreign goods. But Hyundai has grabbed a 20% share of India's fast-growing passenger-car market, selling 120,000 units last year, up 21% from 2001. And company officials predict that rapid growth will continue, pointing to a 30% year-on-year expansion in India's car market during the first five months of this year. A confident Hyundai is investing an additional $200 million to increase its production capacity to 250,000 cars a year. Perhaps more significantly, Hyundai has decided to use India as an export launching pad for its compact cars, which are increasingly popular in Eastern European and Latin American markets. The small cars were designed specifically for India by local engineers, and the company believes their affordability and efficiency will make them a hit in other emerging markets. Hyundai expects to export 30,000 compacts this year. "India is becoming an extremely competitive manufacturing base," Hyundai Motor India President B.V.R. Subbu says. "They're already low-cost producers of satellites. Why not cars and components?" Ford Motor Co. of Dearborn, Mich., and Suzuki Motor Corp. of Japan appear to feel the same way. They are already using their Indian operations to make compact cars for Latin America, Asia and Africa. Meanwhile, Tata Motors Ltd., India's second-largest auto company, has signed an exclusive deal with MG Rover Group Ltd. to supply 170,000 Indica compact cars to the British company over the next five years. The two are also in discussions for Rover to get diesel models from India. Tata Motors executives say the new deals show that India's homegrown designs and models can be exported, even without a formal partnership with a foreign multinational. "These recent trends are very encouraging," says V. Sumantran, an executive director at Tata. India is going global in other segments of the automotive sector, too. Hero Honda Ltd. -- a joint venture of Honda Motor Co. of Japan and Hero Group of India -- and Bajaj Auto Ltd. are now among the world's largest producers of two-wheel vehicles, on the back of Indian sales of three million units a year. Exports of everything from axles and compressors to shock absorbers have also jumped over the past two years. From exports of just $450 million during the 1999-2000 fiscal year, ending March 31, Indian auto-component exports are expected to reach as much as $1.5 billion this fiscal year. Indian companies such as Bharat Forge Ltd., Sundaram Clayton Ltd. and Mico Ltd. say global car makers are looking for the cheapest, best-made input and increasingly are turning to India for its designing prowess and low costs. These Indian companies are now suppliers to almost all the major U.S. and Japanese auto makers, including Ford, General Motors Corp., and Toyota Motors Corp. And Indian officials predict that the component industry's total exports could reach $10 billion by 2010, making India one of the world's major suppliers. India is estimated to have two million working engineers, with its elite technical schools producing 300,000 more each year. Indian executives say the salaries for engineering and information-technology professionals in their country are significantly lower than those of professionals with comparable skills in the U.S. and some other parts of Asia. Entry-level salaries for engineering jobs, for example, are between $650 and $1,000 a month in India, compared with around $3,600 in the U.S., according to Omam Consultants in New Delhi. IT professionals in India, meanwhile, earn on average of $5,800 annually, compared with $6,000 in Russia and $8,900 in China, according to Nasscom, an organization representing Indian software and services companies. Not everyone is so sanguine about India's manufacturing potential. The country's rickety infrastructure needs major overhauls, local and foreign executives here say, and the government's policies are still often hostile to big business. Critics cite, in particular, the country's multiple taxes at different levels of government and high tariffs on many imported products that can saddle Indian exporters with bloated costs. Businesspeople are also concerned that India's current economic upswing -- growth in gross domestic product is expected to be as high as 7.5% for the current fiscal year -- could fizzle. "I'm still cautious of being overly exuberant," says Mr. Sumantran of Tata Motors. "People were predicting annual motor sales of one million" years ago. Last year, total car sales in India reached just over 700,000 units, he points out. Still, many economists and business leaders believe that India's economic-growth rate is sustainable and that India will benefit from the growing economic might of China. Prime Minister Atal Bihari Vajpayee's June summit with Chinese leaders has warmed relations between the two former foes. And Indian steel, petrochemical and pharmaceutical companies are all reporting double-digit earnings growth this year, propelled in part by exports to China. "Over the next five years, China will be consuming 200 million tons of steel per year, and India up to 60 million," says B. Muthuraman, managing director of Tata Iron & Steel Co., who notes that 15% of the company's earnings now come from exports, China being its largest market. "These will be the world's two fastest growth markets, and we're perfectly positioned in both." Write to Jay Solomon at jay.solomon@wsj.com 

THE WALL STREET JOURNAL, OCTOBER 2, 2003 INDIAN STOCKS HAVE AN EDGE OVER THEIR CHINESE COUSINS By CRAIG KARMIN Staff Reporter of THE WALL STREET JOURNAL HONG KONG

China's explosive economic growth and vast domestic market have made it the world's top destination for direct business investment. But when it comes to investing in the stock market, a recent study suggests India might be a better bet. In a survey of 61 Chinese companies trading in Hong Kong and 69 Indian companies listed in Bombay, CLSA Emerging Markets concludes Indian companies enjoyed greater daily trading volume, offered a better return on equity and should have superior earnings growth during 2004. Indian companies also generally scored higher on CLSA's corporate-governance ratings. "Everyone talks about China, but India offers better shareholder value," says Damian Kestel, a member of the CLSA regional sales team who conducted the study. "Indian companies look to make money, not just gain market share." The study, in effect, highlights the contrasting approaches of Beijing and New Delhi toward developing their economies and capital markets. Where China's export-driven manufacturing growth has generated a rising tide of foreign investment in the country, India has been slower to open up. But it has done a better job of developing world-class companies. So in this high-stakes competition for global capital between the world's two most populous nations, multinational companies have been more eager to make big investments in China and continue to view the Chinese consumer as an unparalleled opportunity. Yet India has spawned a greater number of companies that can compete on a global scale and whose management style bears a closer resemblance to their American and European peers. That list includes Indian software firms such as Infosys Technologies and Wipro, pharmaceutical concerns such as Ranbaxy Laboratories and a number of outsourcing companies. These qualities should make Indian companies more appealing to foreign investors, the CLSA study suggests. This proved especially true among the largest Indian and Chinese companies, which tend to be the ones most closely watched by international fund managers. In the category of stocks with a market capitalization of $2 billion or more, the survey found that Indian companies' return on equity of 30% was nearly double that of Chinese companies' 17%. In this group, Indian earnings per share were also forecast to rise 16% next year, compared with a 3% decline in earnings per share for the largest Chinese companies. Moreover, the daily trading volume for this basket of Indian companies easily exceeds that of the large Chinese companies, even though the latter had a market capitalization nearly three times as big. That's because figures on China's market capitalization can be misleading; they often include large chunks of shares controlled by the government that rarely trade. Still, India's advantage doesn't extend across the board. CLSA indicated that for companies valued at no more than $1 billion it was a "pretty even race" in terms of offering shareholder value. CLSA said China small-cap valuations also looked more attractive. So far this year, investors have done almost equally well in both markets. The Morgan Stanley Capital International China index is up 33% in dollar terms, while the India index is ahead 31%. And some fund managers argue that in the near term China offers a greater number of potentially attractive new companies to consider. For instance, three Chinese insurance companies -- PICC Property & Casualty, China Life Insurance and Ping An Insurance -- are expected to list shares in Hong Kong, and possibly in New York, by the middle of next year. "I see more momentum in China than India in terms of the government making an effort to get companies listed," said Brad Aham, a senior portfolio manager at State Street Global Advisors in Hong Kong. He also says he thinks some sectors in China, such as energy, will gain momentum -- and be more responsive to shareholders -- as they begin to make acquisitions outside of China. But Indian-market advocates counter that too much corporate activity in China remains state-directed, reflecting how Beijing has traditionally used the stock market as a means of bailing out weak state-owned enterprises. India , they argue, has better disclosure among its companies, stronger property rights and a more investor-friendly legal system. Ray Jovanovich, a fund manager with Credit Agricole Asset Management in Hong Kong, says he favors Indian stocks over Chinese. He points to infrastructure-related companies such as Associated Cement and engineering firm Larsen & Toubro. The Indian banking system is also widely considered more advanced and stable than China's, where by some estimates nonperforming loans are approaching 50% of gross domestic product. Mr. Jovanovich says he likes ICICI Bank and Kotak Mahindra Bank. Write to Craig Karmin at craig.karmin@wsj.com